Greenwich: Nearly half of bond trading desk budgets now spent on technology

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New research by Coalition Greenwich has found that the proportion of budget for fixed income trading desks spent on technology grew to 46% in 2020, up from 40% the previous year.

The increase of six percentage points over the previous year reflects the strain that buy-side trading desks are under to manage greater trading volumes in primary and secondary markets, and the maturity of solutions that can mitigate that problem.

Total spend was on bond desks was down, which Brad Tingley, report author and market structure & technology analyst at Coalition Greenwich, noted that this could reflect the asset class performance.

“Interestingly, fixed-income desks experienced a slight decrease, with the average trading desk holding a $1.95 million budget (down 1%),” he wrote. “Perhaps this slight anomaly can be best explained by the relative underperformance of fixed-income hedge funds compared to their peers employing long/short equity strategies. For instance, the Eurekahedge Fixed Income Hedge Fund Index was 456 at the end of 2020 compared to 582 in the Eurekahedge Long/Short Equity Hedge Fund Index (indices are base-weighted at 100 at December 1999).”

Whereas the order management system (OMS) took the highest proportion of equity desk tech spend, market data terminals consumed nearly half of the bond desk tech budget (46%) with just 11% on the OMS and 9% on transaction cost analysis and also 9% on market data feeds.

“Without public exchanges to help assist in the price discovery process, fixed-income traders rely on pricing models provided by terminal vendors as an input to their strategies,” Tingley observed. “Note that Bloomberg also operates some of the largest fixed-income marketplaces on a global basis, keeping the Bloomberg Terminal extra sticky for these users.”

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